In a statement released on 12 January 2018, US President Donald Trump waived US sanctions on Iran, as stipulated under the Iran nuclear agreement (Joint Comprehensive Plan of Action – JCPOA), but stated that this would be “a last chance” before he would withdraw the US from the deal unless US Congress and European allies “fix” the JCPOA.

• Trump’s renewal of sanctions waivers keeps the US technically compliant with its obligations under the JCPOA, preserving the JCPOA until May 2018 at which point he will need to once again decide whether to waive the sanctions.
• Trump’s call for a ‘supplemental’ agreement with Europe likely reflects ongoing efforts to enlist a stronger European response against Iran’s ballistic missile program and regional expansionist policies.
• Trump’s self-imposed ‘red line’ on the JCPOA raises the political costs of preserving the agreement in its current form beyond four months, increasing the risk of its collapse thereafter.

In October 2017, Trump decertified the JCPOA, asserting that the JCPOA in its current form was inconsistent with US national security interests. Following this declaration, the Republican-majority Congress opted not to act to snap-back US nuclear sanctions on Iran, despite being able to do so with a simple majority. This reflects divisions within Congress and even the Republican establishment regarding US policy on Iran and the JCPOA. The divisions are likely due to a combination of concerns, namely uncertainties over the consequences of a collapse of the JCPOA, European commitment to preserving the JCPOA, and US difficulties in forging a multilateral sanctions regime on Iran while Iran remains compliant under JCPOA.

Trump’s demands

After decertifying the JCPOA in October, Trump requested that Congress pass legislation that would impose new restrictions on Iran. Throughout October-December 2017, with the tax overhaul and ongoing budget negotiations, Congress did not pass any legislation to address Trump’s concerns on the JCPOA. In his 12 January statement, Trump reiterated his request that Congress pass bipartisan legislation that would impose new restrictions on Iran, namely (1) granting unrestricted access to Iranian sites by international inspectors; (2) requiring that Iran never come close to possessing a nuclear weapon (already a key provision of the JCPOA); (3) removing the sunset clauses on these and other JCPOA restrictions; and (4) subjecting Iran’s ballistic missile program to significant sanctions.

Trump also asked European allies to negotiate a ‘supplemental’ agreement with the US to impose new multilateral sanctions should Iran test long-range missiles, violate inspections requirements, or advance toward a nuclear weapon.

Also in the statement, the US designated 14 Iran-related individuals and entities under existing US sanctions. Notably, the US imposed sanctions on chief of Judiciary Sadeq Larijani for human rights abuses. Although Larijani aligns with the hardline conservative faction, rhetorically opposed to the JCPOA, his brother and Speaker of Parliament Ali Larijani is an important ally for the centrist President Hassan Rouhani, a proponent of JCPOA. The selective targeting of the Iranian political elite likely serves to exacerbate factional rivalries ahead of the eventual succession to Supreme Leader Ali Khamenei, with Sadeq being groomed as a potential successor. This is also likely to further drive divisions inside Iran on responses to US hostilities, driving up the risk to state stability.

Iran’s view

Iran is very unlikely to accept additional restrictions on its nuclear program, offer meaningful concessions on its ballistic missile program, and is even less likely to accept the precedent of renegotiating the JCPOA. Iranian officials have repeatedly stated that the International Atomic Energy Agency will not be allowed access to Iranian military sites. However, the JCPOA includes a mechanism to give the IAEA access to inspect any sites suspected of unauthorized nuclear activity, and if Iran refuses (‘significant non-performance’), Iran would be subject to full snap-back of multilateral sanctions. Nevertheless, Iran has repeatedly emphasized that it will not be the first party to breach the agreement. Although Iran would view any forthcoming US legislation imposing additional restrictions on Iran as a violation of the JCPOA, Iran’s response is likely to be restrained, despite recent statements by Iranian officials that Iran’s continued JCPOA compliance would be contingent on US compliance. Instead, Iran is likely to prioritize keeping the Europeans on its side. Reflecting this, Iran announced on 10 January 2018 that it has suspended capital punishment for non-violent drug offences, a key human rights demand from the EU.

Longer term, the level of Iran’s nuclear restraint in the face of a potential US withdrawal from the JCPOA would be contingent on Iran’s ability to preserve a meaningful level of foreign trade and investment with European and Asian countries. Although Iran has expanded trade since the implementation of the JCPOA, particularly oil exports, Iran’s high-risk operational environment, residual US sanctions complicating dollar transactions and uncertainties regarding the JCPOA’s longevity since Trump’s inauguration have slowed foreign investment. Meanwhile, Iranian behavior in recent months indicates that it is seeking to minimize provocative actions that would risk a more assertive (potentially military) US response. Most notably, there have been no reported incidents of Iranian naval harassment of US naval forces in the Gulf since July 2017, although such incidents were frequent in 2016.

Outlook and implications

Trump’s pledge to refuse further sanctions waivers unless Congress and European allies “fix” JCPOA flaws significantly increases the risk of US unilateral withdrawal and subsequently the risk of a JCPOA collapse beyond the four-month outlook. Politically, Trump’s announcement imposes higher political costs for Trump to continue to preserve the JCPOA in its current form, therefore limiting his maneuverability on the JCPOA. Despite this self-imposed ‘red line’, Trump still maintains flexibility over what he can deem as satisfactory progress towards meeting his demands by May 2018 when he will next have to consider the sanctions waiver. For their part, European governments have repeatedly stated that the ballistic missile program is outside the JCPOA and therefore are unlikely to agree to a ‘supplemental’ agreement. For its part, Iran is unlikely to re-negotiate the JCPOA, nor comply with any forthcoming additional restrictions by Congress or European allies.

IHS Markit further assesses that Iran’s ballistic missile program has not yet reached a threshold where it constitutes a critical threat to US interests. Moreover, the JCPOA includes penalty provisions, including a full snap-back of multilateral sanctions, should Iran violate its inspections obligations and breach its nuclear-related commitments. Together, these suggest a lower level of urgency for the US in resolving Iran’s ballistic missile issue. Instead, the Trump administration’s priority is likely to enlist greater political opposition by the Europeans to Iran’s ballistic missile program, particularly with respect to the transfer of such weapons to the Yemen theatre of conflict. Importantly, a leaked report by the United Nations also on 12 January found Iran in violation of the UN arms embargo affecting Yemen. This comes within the context of a likely escalation in the Yemen conflict. Greater international consensus against Iranian actions in Yemen also provide the US with opportunities to build a legal case on Iran’s violations of international law, strengthening its ability to gradually isolate Iran.

In light of this, there are several indicators of a changing risk environment such as any sympathetic messaging by the Europeans regarding their concerns over Iran’s ballistic missile program or weapon transfers. This would probably delay a US withdrawal from the JCPOA, but nonetheless increasingly isolate Iran. Support by some Democrats in Congress for legislation on Iran would also indicate progress in Congress to meet Trump’s demands. In addition, provocative actions by Iran’s proxies/non-state allies, such as Hizbullah or Hamas, or further use of missiles by the Houthi militant group in Yemen, would increase pressure on the US to punish Iran and potentially drive a greater consensus in Congress that would be in line with Trump’s demands, increasing the risk of JCPOA collapse.